Biglari Continues to be a Thorn

Alex is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Much has been written about Sardar Biglari and his firm Biglari Holdings (NYSE: BH).  It seems the investment community either loves him or hates him. 

Based on many articles I have read, there are several authors that take issue with Mr. Biglari and his methods.  However, since being elected to the board of Steak ‘n Shake (now Biglari Holdings) investors have been reasonably rewarded.  In addition, many have compared Mr. Biglari to the much-beloved Warren Buffett of Berkshire Hathaway

Of course, most comparisons are negative to Mr. Biglari and distance the two investors.  I would agree that Mr. Biglari does not seem to share many of the personal characteristics of the Warren Buffett we know today, and that is just fine with me.  If you are lucky enough to find the next Berkshire Hathaway, you will probably not find Buffett's twin at the helm.

In the ongoing saga with Cracker Barrel Old Country Store (NASDAQ: CBRL), Mr. Biglari continues to seek board seats for himself and the Vice Chairman of Biglari Holdings, Philip Cooley.  His initial attempt to do so was rejected by the board and the shareholders last year.  Rather than backing down, Biglari continued to increase its stake, which currently stands at approximately 17.6%, and is taking another swing at two board positions.  However, this run at board seats has become even more interesting. 

Cracker Barrel announced that James Bradford would replace outgoing Chairman Michael Woodhouse.  In filings and other correspondence by Cracker Barrel, the company inferred that Mr. Bradford had previously been the CEO of an NYSE traded company.  However, with a little research, Biglari discovered that when Mr. Bradford was CEO, the company was in fact not a NYSE traded company.  Other than referring to the error as a misunderstanding, a clear explanation has not been offered by Cracker Barrel, so it is unclear if this was an honest mistake or an intentional effort to mislead shareholders.  Of course, Biglari Holdings is using the potential deception to further the cause of placing its executives on the board.

Another compelling argument being made by Biglari is the method by which Cracker Barrel calculates the return on investment for capital used to open new stores from 2004 to 2009.  Cracker Barrel uses store EBITDA of $61.8 million on invested capital of $382 million, giving them a return of 16.2%, which was relayed to shareholders.  However, this method totally disregards allocating expenses such as depreciation, general & administrative costs, and taxes.  According to a presentation from Biglari, when these expenses are allocated the return plummets to 3.7%. 

To be clear, Cracker Barrel is not a broken company that is typical of an activist investor.  In fact, it could certainly be argued that Cracker Barrel was doing just fine as a business and did not require the nudging of such a shareholder.  However, the presence of Biglari has certainly focused management on both operations and its shareholders.  Since Biglari announced its position, the company has improved operating results, increased the dividend substantially, bought back shares and announced corporate objectives that were once raised by Biglari. 

The stock price has has been on a tear since Biglari Holdings sent its initial letter to the Cracker Barrel chairman, exceeding the overall market performance by a healthy margin.  So why isn’t Biglari just taking its gains and moving on?  Biglari believes there is money still on the table.  Another $1 billion in market value is potentially at stake if existing stores are returned to historic profitability.  This would result in another 67% gain for the stock from its current levels. 

Regardless of popular opinion of Mr. Biglari personally, his presence has been good for Cracker Barrel and good for shareholders. Stay tuned on this deal. 


ScavengerReport has no positions in the stocks mentioned above. The Motley Fool owns shares of Biglari Holdings and Berkshire Hathaway. Motley Fool newsletter services recommend Berkshire Hathaway and Cracker Barrel Old Country Store. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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